APPENDIX 15
Memorandum submitted by the UK Business
Council for Sustainable Energy
INTRODUCTION
The UK Business Council for Sustainable Energy
welcomes this opportunity to submit a memorandum to the Committee's
inquiry into a longer-term international regime to tackle climate
change particularly focused on international emissions trading.
We commend the Committee for undertaking the inquiry at a crucial
time in the development of the UK's climate policy for the G8
and EU Presidencies.
The UK Business Council for Sustainable Energy
was formally launched in January 2002. Its role is to create and
sustain a framework for high level policy engagement across the
energy sector on climate change, sustainable development and the
transition to the wider use of sustainable energy. It is one of
an emerging number of similar Councils with others being in the
United States of America and Australia.
The UK Council brings together major energy
businesses focused on the delivery of sustainable energy technologies
and services including renewable energy, energy efficiency and
energy efficient technologies such as combined heat and power
(CHP). The Council is working to build a broad consensus on many
of the issues surrounding the development of sustainable energy
in the UK. Business supporters of the Council include: Centrica,
EDF Energy, E.ON UK, National Grid Transco. RWE npower, Scottish
and Southern Energy, Scottish Power, United Utilities, Shell UK,
BP, and CE Electric Ltd.
PROGRESS TOWARDS
EMISSIONS REDUCTION
GOALS
President Putin's signing of the Kyoto Protocol
on 5 November, 2004, means that the Protocol and its binding targets
will now enter into force. The complex negotiations to define
the "post-2012" phase of the Protocol will commence
in 2005. This, together with the UK's Presidencies of the G8,
and the EU in the second half of 2005, give the UK Government
an important opportunity to reinforce the momentum and support
that will be required to provide solid foundations for agreements
made through the UNFCCC process.
The Business Council supports the Kyoto Protocol
entry into force, based upon a firm domestic foundation for achieving
UK commitments, and a clear sense of the direction of policy.
Considerable investment by industry will be
required to meet domestic near term goals, as well as the tougher
longer term targets which will be necessary in the future, noting
support by the Prime Minister for a 60% cut in emissions by 2050.
Within the electricity sector the lead-time for these investments
is typically three to five years, with payback periods often in
excess of 15 years.
Therefore, from the energy industry's point
of view, decisions about the future direction of climate and energy
policy—nationally and internationally—should be made
early, and clearly, to enable confident investment planning.
This is particularly the case in the UK where
investment decisions are expected in the next five years on new
generation assets and infrastructure for the country.
EMISSIONS TRADING
The EU Emissions Trading Scheme (EU ETS) is
likely to be the leading climate change policy instrument with
the greatest impact on the energy sector over the next decade.
The Council fully supports the introduction of EU-wide emissions
trading as an effective means of delivering emission reductions.
The emergence of the EU ETS is already having
an impact on the energy sector as it develops the systems to respond.
Significant attention, within companies, is being given to carbon
management and commercial strategies for achieving mandated emissions
reductions within the company. The success of the overall scheme
will ultimately depend on the long-term signal it sends to industry.
However it is important that expectations are
realistic: the EU ETS in its first three year phase (2005-07)
should be viewed as a learning phase. Companies know the second
phase will be much tougher than the first.
Currently only the rules for the operation of
the first phase are known. This is too short a time-period to
make a real influence on industry's investment decisions. Decisions
that create clarity on the structure and rules of the second and
subsequent phases of the trading scheme are required if trading
is to make a meaningful contribution to the Government's targets.
In terms of emissions trading as a mechanism
for achieving emissions reductions internationally, the Business
Council would prefer to build on the existing EU ETS market structure
rather than re-negotiate an international trading regime that
is not directly compatible. This is to avoid creating a perception
that commercial decisions, made in response to the EU ETS, are
at risk, due to a changing overall global framework for trading.
The Business Council would prefer to retain
the existing structure of the Kyoto Protocol, rather than commence
negotiation of a "post-2012" regime from a blank piece
of paper. We raise this point again below. The Protocol also provides
the framework in which the EU ETS has the opportunity to engage
with other national nations and companies internationally, in
a structured and accountable manner, utilising the Clean Development
Mechanism (CDM), and potentially other avenues in the future.
Whatever trading regime finally evolves internationally,
the importance of early clarity on the details of rules, allocations
and liabilities cannot be overstated. In this context it is worth
pointing out that the delay in providing final details of the
UK National Allocation Plan at company level until is frustrating
the efforts of UK companies preparing their approach to the scheduled
start on 1 January 2005.
EMISSIONS TRADING—SCOPE
In terms of emissions trading as a core means
of implementing emissions reductions, it is important to note
that:
Firstly emissions trading alone is not sufficient
to drive investment into sustainable energy—energy efficiency,
renewable energy or CHP. These technologies require specific frameworks
to stimulate investment and overcome barriers—the UK's Renewable
Obligation Certificate market being a case in point. The EU ETS,
for example, will not be sufficient to revitalise the CHP industry
in the UK. This means that while emissions trading may play an
important role in ensuring that carbon is taken seriously at company
level; it is not a substitute for effective sustainable energy
policy, and this is a key point to be aware of in terms of the
weighting given to different mechanisms and approaches.
Secondly, to meet UK's domestic and longer term
goals it will be necessary to ensure that other sectors become
as fully engaged as the energy sector currently is. In particular
action needs to be taken to ensure that the transport sector (including
aviation) is playing its part in delivering emission reductions.
At present, the gains made in the last few years from the power
sector are being largely negated by rising emissions in the transport
sector.
As such we welcome the Government's intention
to explore options for bringing aviation into the EU Emissions
Trading Scheme, and we also believe it must be tackled internationally
through the UN climate regime. We would note, however, that the
aim of any trading scheme is to incentivise cost-effective emissions
reductions. This means that the air transport industry will require
technologies and strategies for reducing their emissions, otherwise
a situation may arise where the aviation sector becomes a major
purchaser of allowances in the market, increasing the overall
price of carbon, without delivering actual emission reductions
itself. This could then mean additional effort from other sectors
in the scheme.
More must also be done to engage the road transport
sector. This is not an area where the Council has particular expertise
but we are aware of the work being done to promote the use of
bio-fuels, which would appear to present a practical opportunity
to make substantial emissions reductions from the use of transport
fuels.
EU AND INTERNATIONAL
CLIMATE CHANGE
POLICY
With its role as Chair of the G8 and President
of the European Council in 2005, the UK Government has an important
role to play in taking forward the Kyoto and post-Kyoto agendas.
The Council supports a clear long-term approach
to emissions reductions which is consistent with the level of
effort required for climate protection, but under which new targets
should be achievable, and sustainable.
The Council has already provided input to Government
on the G8 and EU presidencies. In particular we highlighted the
existing agenda and interest in technology, and proposed that
a Sustainable Energy Investment Initiative be developed. This
could progress understanding and action on key "pre-conditions"
needed by investors to accelerate markets in energy efficiency,
renewable energy and CHP. It is particularly important as a very
significant investment will be required in the coming decades
for new energy generation and infrastructure internationally,
and getting the policy frameworks and other elements established
that ensure money goes to the least carbon intensive energy pathway
possible will be vital to achieve climate protection goals. This
kind of initiative could also look at the role that carbon markets
will play in this regard.
More generally we support the development of
a renewed international consensus, including dialogue with those
countries with increasing energy demand and emissions, such as
India and China, on the scale, direction and timeframe for global
emissions reductions. This will be central to achieving the Prime
Minister's goal to cut emissions by 60% by 2050. We believe this
should build upon the Kyoto Protocol architecture in order to
build confidence and stability in new low carbon investments.
Lastly we support the Prime Minister's three
pronged approach to climate change under his G8 Presidency. This
covers: securing agreement as to the basic science on climate
change, accelerating a the science, technology, and other measures
necessary to meet the threat and engagement with other countries
with growing energy needs—like China and India.
The Council is working to build a strong progressive
business voice with respect to the low carbon technology agenda
the Prime Minister intends to advance. Governments do have a crucial
role in building and sustaining the market confidence needed to
secure the investment by energy businesses, and other players,
that will be essential for delivering real outcomes on the ground.
CONCLUSION
The Council welcomes this opportunity to submit
written evidence to the Committee, and would value the opportunity
to present oral evidence to the Committee.
We believe that sustained, innovative and effective
action is needed to tackle climate change.
The UK has had an outstanding record to date.
The challenge is now to see this through for the long-term, and
build towards the major carbon reductions that the Royal Commission
on Environmental Pollution has so clearly indicated are needed,
and to which the UK Energy White Paper committed.
16 November 2004
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